Tongher- a safe stock for long-term investment

Tongher- a safe stock for long-term investment: "Results Update

The past 4 quarters has not been good for Tongher. When compared to the preceding 4 quarters, Tongher's turnover has declined by 37% to RM253 million while net profit has plummeted by 99% to RM0.3 million. In term of net profit, Tongher's past 4 quarters was the worst that it recorded in the past 5 years (see Chart 1). The drop in top-line in the last 2 quarters has effectively put the company back to QE30/9/2005 or QE31/3/2006. The drop in turnover was attributed to competitive market.


Table: Tongher's 8 quarterly results


Chart 1: Tongher's last 27 quarterly results

Financial Position

Despite the poor performance in the past one year, Tongher's financial position is still very healthy. As at 30/9/2009, its current ratio is at 6.7 times while Bank Borrowings to Shareholders' Funds stood at 0.1 times. More importantly, its cash balance stood at RM157 million or RM1.24 per share.

Other Development

In August 2009, Tongher had advised that the European Communities ('EC') had initiated an anti-dumping and anti-subsidy proceeding concerning imports of certain stainless steel fasteners and parts thereof originating in India and Malaysia. This proceeding may affect Tongher's financial performance in the next few quarters.

Valuation

Tongher (closed at RM1.69 as at Dec 21) is now trading at a PE of 15.4 times (based on annualized EPS of 11 sen). Price to Book is at 0.8 times (based on NTA per share of RM2.16 as at 30/9/2009). At this multiples, Tongher is deemed fairly valued.

Technical Outlook

Tongher has been dropping after making a high of RM4.50 in 2007. It hit a recent low of just under RM1.50 in October 2008 before rebounding. Since the announcement of the anti-dumping & anti-subsidy proceeding by the EC in August, Tongher's share price has been drifting lower. Presently, it is sitting on its long-term uptrend line support at RM1.65. It has strong horizontal support at RM1.50.


Chart 2:Tongher's weekly chart as at Dec 21, 2009 (Source: Tradesignum)

Conclusion

Despite the recent poor financial performance & the uncertainty regarding the anti-dumping & anti-subsidy proceeding by the EC, Tongher may be a good stock for very long-term investment. Its financial position is very healthy and its downside is limited as it has good support at RM1.50-65.

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